Business Planning

Business Formation

When forming a new business, there are many things to keep in mind. One of the most important is that the business is formed in accordance with the relevant local, state, and national laws. Our experience in business law can ensure that your business complies relevant laws and regulations, as well as keep you up to date on changes that affect your livelihood. Even forming a business can be challenging to a start up. Choosing an experienced attorney from Ofenbakh Law Firm can provide you with the security of knowing your business will be compliant from the beginning so that you can focus on your real priority: the business in which you’ve invested so much time, energy and money.

Contracts

When entering into any business deal, a well-drafted contract is your best insurance policy against future disagreements and helps to clarify the exact nature and extent of the parties’ obligations to each other. This legally binding agreement between two or more parties can be uniquely tailored to your situation to fit your exact needs. Contracts can be verbal or in writing, but an experienced business law attorney will draft a document memorializing your agreement that is legally enforceable, complies with all relevant statutes, and protects your business’s interests.

Operating Agreements

Have you ever been divorced or know someone who has? We all look back and say “There should have been a pre-nup!” With a business, the divorces are worse – nastier, more intense, and more expensive. Why? In your marriage you can choose to have a separate bank account with your spouse; you can choose to have a different career, you can choose to eat a different meal; and some people even choose to sleep in different beds. Well, not in business.

In business, you and your partner(s) have access the same bank account. The level of trust that you share is intimate. You spend more time with your business partner(s) than you do with your spouse and running a business is not an easy task. In business, the partners must agree. If they don’t, then divorce is inevitable. You need a pre-nup, which is called an Operating Agreement (OA) in the business world. (See http://www.businessweek.com/smallbiz/content/sep2009/sb20090925_379753.htm)

Just like with pre-nups, you are more likely to agree on things in the beginning of the relationship. An OA is a legally binding document, created at the beginning of your business relationship, which clearly defines the rules of your partnership, including its demise. An OA usually includes:

  • Organization -- addresses your Ws – What kind of business is it; What does it do; Where is it located;
  • Management – how is it managed: Do all partners have the same powers or does each have a different responsibility?
  • Contributions to Capital – who contributes how much start-up money and the process for adding to that capital;
  • Capital Allocations and Distribution – how and when both the profits and the losses are shared. This is especially important if one of the partners contributes services and the other cash;
  • Transfer of Membership Interests – the process for gaining new members, what happens when a member retires, and a provision for expulsion of a member.
  • Voting, Quorum, and Meetings -- who is allowed to vote and how much weight each member’s vote has; how many members constitute a quorum for an official meeting.
  • Fiscal Affairs Records – who, what, when, where, and how any and all fiscal records are kept.
  • Termination and Dissolution -- let’s define the divorce proceedings, shall we?

If you are thinking about starting a business with someone else or already have a functioning business but need to get all your ducks in a row, contact a reputable business attorney in your area. Unlike marriage, a business “pre-nup” can also be a “post-nup,” and it is never too late to get one while partners get along!

Independent Contractor vs. Employee

When looking to hire someone, should you hire them as an employee or an independent contractor? The answer depends on what you want from that person. An employee, or agent, is subject to more control than the independent contractor. However, an independent contractor carries much less risk of being vicariously liable for their actions and no employment tax from the employer. What does that mean? The level of control, or direction, you give to a person is an inverse proportion for the risk of vicarious liability and tax responsibility.


With an employee, you control not only what task they are assigned to, but exactly how they do it and even what they wear when they do it. That level of control carries an implied vicarious liability, which means that because you exert so much control over their actions in the course of their job, you are liable for what they do as if you were doing it yourself. The only limit to this vicarious liability is that the employee must be acting within the scope of their employment at the time.


With an independent contractor, you only control what task they are assigned. You do not get to control how they do that task. Think of a plumber or a contractor, you hire them to fix something in your house but you would not tell them how to fix it, what tools to use, or what to wear while they do so. As you lack much control over their actions, the risk of being held liable for what they do is next to nothing. They are essentially acting for themselves as an independent, hence the name. This does come with an exception though. If you hire someone as an independent contractor but dictate the manner in which they perform their task or require that they consult you for every decision then the Court can say that they were essentially your employee and hold you vicariously liable. This is where franchises, such as McDonald’s, get in trouble. The level of control necessary to ensure a consistent product, which is something you want when it’s your name on the line, can open you up to liability for the franchisee’s actions.


Some things to consider when determining whether to hire an employee or a contractor are listed below. However, these are only the most obvious factors and the final decision for tax and legal purposes is determined on a case by case basis. This means that the best way to determine your hiring policies is to first hire a lawyer.


Employee
•    Behavioral control
o    Who, What, When, Where, and How
•    Financial control
o    Reimbursed for expenses
•    Relationship of the parties
o    Employment benefits, at-will employment, long-term or indefinite employment
•    Employment contract, can only be fired for breach of that contract, temporary employment


Independent Contractor
•    Behavioral control
o    Who, What, and if the situation calls for it When and Where
•    Financial control
o    Expenses not reimbursed but eaten as a cost of doing business
•    Relationship of the parties